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Why an Amazon Smartphone Launch Makes Perfect Sense

The Amazon Store app is currently available for Android and iOS. Releasing a Smartphone could enhance that mobile shopping experience.

Photo: Ariel Zambelich/Wired

Amazon is having a banner week in the rumor department. On Wednesday, the China Timesreported that Amazon is spinning up production of a next-gen Kindle Fire for a release date sometime in the next two months. And now the huge online retailer is once again the target of smartphone speculation – not bad for a company that was best known for book, garment and small appliances deliveries just 12 months ago.

Bloomberg reports Friday that Amazon is currently developing a smartphone to compete with iPhone and Android phones already on the market. The report cites two sources with knowledge of the matter.

According to one of the sources, Amazon is working with Foxconn, Apple's iPhone and iPad supplier, to bring the smartphone to the market. Unfortunately, the Bloomberg report doesn't include a timeframe for the Amazon phone's arrival.

Today's news harkens all the way back to November 2011 when Citigroup analyst Mark Mahaney told investors, “Based on our supply chain check, we believe FIH [Foxconn] is now jointly developing the phone with Amazon.” Mahaney noted that the smartphone could be expected in the fourth quarter of 2012. Just in time for the holidays.

An Amazon smartphone would complement the current Amazon ecosystem: All of Amazon's hardware offerings act as digital storefronts for books, music, movies and TVs shows, and a smartphone tailored to an individual's unique purchasing habits could be the ultimate vehicle for impulse buys. After all, unlike the Kindle Fire tablet (which sometimes stays at home), an Amazon smartphone would always be in someone's pocket or purse, ready for action.

As ABI Research Analyst Aapo Markkanen told Wired in May, “The lock-in effect of a great content ecosystem shouldn’t be underestimated.”

Aside from the latest Bloomberg report, there's another piece of circumstantial evidence that Amazon is looking to enter the smartphone space. A recent report shows that Amazon acquired 3-D mapping startup UpNext. Google and Apple have recently shown off improved mapping services, and Amazon could be gobbling up companies and technologies to keep up in this arena – and to make its highly customized version of Android, currently only deployed in the Kindle Fire tablet, more smartphone-oriented.

Does the world really need an Amazon smartphone? And what consumer "problem" would an Amazon smartphone solve? The Kindle Fire is a serviceable e-reader and movie viewing platform, but who really wants to read long-form content or watch Hollywood movies on a puny little smartphone?

Well, we might scoff now, but we can't underestimate Amazon's ability to offer a very important smartphone feature that other mega-companies can't provide: a highly subsidized price. Because a smartphone would goose the sales of both digital content and physical deliveries, Amazon could subsidize its phone to a price point that makes the traditional wireless carriers look stingy. “Given that Amazon’s strategy is to treat devices as a content hub rather than a standalone product, it’s pretty likely that price points for the smartphone would be very aggressive,” according to Markkanen.

With a rumored Kindle Fire launch on the horizon, we could see an Amazon phone announcement as soon as the end of July.